High-Frequency Déjà Vu

If you are a believer in “free-markets” and laissez-faire, perhaps an excursion beyond Milton Friedman (& company) might prove useful.

Here is one suggestion:

Flash Boys: A Wall Street Revolt by Michael Lewis © 2014

In trying to unravel a Wall Street mystery, several people, hired and headed by Brad Katsuyama of RBC (Royal Bank of Canada), pursued the threads of evidence and history. One of those pursuers was John Schwall who went “digging around the Staten Island library” looking at other Wall Street scandals. Here is how Lewis describes it:

Several days later [John Schwall had] worked his way back to the late 1800s. The entire history of Wall Street was the story of scandals, it now seemed to him, linked together tail to trunk like circus elephants. Every systemic market injustice arose from some loophole in a regulation created to correct some prior injustice. “No matter what the regulators did, some other intermediary found a way to react, so there would be another form of front-running,”^[1] he said. … He’d learned several important things, he told his colleagues. First, there was nothing new about the behavior they were at war with. The U.S. financial markets had always been either corrupt or about to be corrupted. Second, there was zero chance that the problem would be solved by financial regulators; or, rather, the regulators might solve the narrow problem of front-running in the stock market by high-frequency traders, but whatever they did to solve the problem would create yet another opportunity for financial intermediaries to make money at the expense of investors. ... (p. 103)

So, here is a suggestion for those who “worship at the altar of the free-market”² (like conservative Gerry Nicholls²). Please: open your eyes and ears to the high-frequency déjà vu of the faux-free, faux-efficiency, faux-self-correction, faux-hype, etc., etc., surrounding corporate capitalism.

from office.microsoft.com

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1. “Front running is the illegal practice of a stockbroker [or high-frequency trader, et al.] executing orders on a security [or buying/selling] for its own account while taking advantage of advance knowledge of pending orders from its customers [or other investors, buyers, sellers, or brokers.]. …” quoted from  http://en.wikipedia.org/wiki/Front_running
2. Quote from conservative Gerry Nicholls at minute 9:50 on CBC “The Current”: episode titled, “What is the Future of Public Broadcasting in Canada?” broadcast May 14, 2014.) http://podcast.cbc.ca/mp3/podcasts/current_20140514_13102.mp3

A Series of Massive Delusions*

(or The Toxic Fallout from Ayn & Uncle Miltie)

Posted in observance of April [etc.] Fool’s Day

Here are a few quotes from Boomerang by Michael Lewis—a déjà vu of “what you sow is what you reap [eventually**]”:

“They created fake capital by trading assets amongst themselves at inflated values, … This was how the banks and investment companies grew and grew” (p. 17 ~ quote from a London hedge fund manager).

… bankers buying stuff from one another at inflated prices, borrowing tens of billions of dollars and relending it to members of their little … tribe, who then used it to buy up a messy pile of foreign assets (p. 19-20).

One of the hidden causes of the current global financial crisis is that the people who saw it coming had more to gain from it by taking short positions than they did by trying to publicize the problem (p. 20).

Inside Greece [or nation X—take your pick], there was no market for whistle-blowing, as basically everyone was in on the racket (p. 63).

Extremely smart traders inside Wall Street investment banks devise deeply unfair diabolically complicated bets, and then send their sales forces out to scour the world for some idiot who will take the other side of those bets (p. 153).

… Morgan Stanley designed extremely complicated credit default swaps so they were all but certain to fail, so that their own proprietary traders could bet against them … (p. 153).

The American bond traders may have sunk their firms by turning a blind eye to the risks in the subprime bond market, but they made a fortune for themselves in the bargain, and have for the most part never been called to account (p. 161-2).

They’d [Americans] been conditioned to grab as much as they could, without thinking about the long-term consequences. Afterward, the people of Wall Street would privately bemoan the low morals of the American people who walked away from their subprime loans, and the American people would express outrage at the Wall Street people who paid themselves a fortune to design the bad loans (p. 202).

“We have lost the ability to self-regulate, at all levels of society. The five million dollars you get paid at Goldman Sachs if you do whatever they ask you to do—that is the [reptilian scarcity/abundance trigger that short-circuits long-term benefit for short-term biology/gratification; in other words, diet versus] chocolate cake upgraded” (p. 205, quoting/ paraphrasing Dr. Peter Whybrow—UCLA neuroscientist).

The extent of the corruption, self-service, and criminality is so pervasive and incredible that too many view it as just that—not credible; or in the alternative, as a regrettable, collateral zit on the divine face of free markets. These nice-people-in-suits who furnish/entice us with consumables, loans, investments opps, and aspirations can’t be so bad!

Well folks, the bad news is: it is BAD, BAD, BAD; BADDER (Yes! BADDER because worse doesn't sufficiently describe it) than you even imagine. And the toxic fraud and fallout will continue till we demand a new cultural paradigm of balance, where libertarianism is seen for what it is—an untenable extreme of individualism—as untenable and devastating as extreme collectivism. (What it really amounts to is a concentrated collectivism on the right as opposed to a supposedly broad one on the left. At both extremes, the status of the majority is impoverished, despite the hype.)

Perhaps it is time the “masses yearning to [be] free” of massive fraud and corruption demanded a massive right-wing correction in a déjà vu mirror image from 1987: “Tear down this Wall Street!” And “Let my people go find a more just and equitable way.”

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* p. 198 from Boomerang: Travels in the New Third World by Michael Lewis (2011)—a book every adult should read; every libertarian should read twice (a day); and every bond trader (and accomplice) should have piped into their Leavenworth/FCI-Tallahassee (etc.) cell 24/7 on a rotating basis with other exposes, including The Big Short: Inside the Doomsday Machine also by Michael Lewis.
** If not now, then hereafter, as in “For the love of money is the root of all evil: which while some coveted after, they have erred from the faith, and pierced themselves through with many sorrows. (New Testament 1 Timothy 6:10)

“Tear down this wall!” reference: http://en.wikipedia.org/wiki/Tear_down_this_wall !

Which Hand? — Invisible? or Learned?

~
Adam Smith’s invisible hand (in its present, contorted multinational condition):

By preferring the support of [global] to that of [domestic] industry, [the multinational] intends only [its] own security; and by directing that industry in such a manner as its produce [and branding] may be of the greatest value, [it] intends only [its] own gain, and [it] is in this, as in many other cases, led by an invisible hand to promote an end which was no part of [its revealed] intention. Nor is it always the worse for the [political] society that it was no [transparent] part of it. By pursuing [its] own interest [it] frequently promotes that of [its Highly Paid Employees, i.e., HyPEs] more effectually than when [it] really intends to promote it [for its shareholders and VIFriends]. I have never known much good done by those who affected to [manufacture globally] for the public good [of poor nations/peoples]. It is an affectation, indeed, not very [un]common among [modern corporate PR] merchants, and very few words need be employed in dissuading them from it [because Ayn R. and Milton F. have done such a persuasive job through idea-branding and bull-sales].

What is the species of domestic industry which his capital can employ, and of which the produce is likely to be of the greatest value, every individual [small business owner or state], it is evident, can, in [their] local situation, judge much better than any [big lender, IMF or World Bank] can .... The [Financial behemoth that] should attempt to direct private people [or sovereign nations] in what manner they ought to employ their capitals would not only load [itself] with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no [profit-obsessed] council or senate whatever, and which would nowhere be so dangerous as in the hands of a [global corporation] which had folly and presumption enough to fancy [itself] fit to exercise it.¹

ON THE OTHER HAND:

Learned Hand ² (1872 – 1961), U.S. Judge and judicial philosopher; and the lower-court judge most quoted³ by legal scholars and SCOTUS:

What then is the spirit of liberty? I cannot define it; I can only tell you my own faith. The spirit of liberty:

▪ is the spirit which is not too sure that it is right;
▪ is the spirit which seeks to understand the minds of other men and women;
▪ is the spirit which weighs their interests alongside its own without bias;
▪ remembers that not even a sparrow falls to the earth unheeded;
▪ is the spirit of Him who, near two thousand years ago, taught mankind the lesson that it has never learned but never quite forgotten; that there may be a kingdom where the least shall be heard and considered side by side with the greatest.⁴

In the déjà vu recyclings of this world, which hand are we presently holding? Or are we (and our various nation states) being choked by hands which have become more than visible?

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1. Original 1776 quote found in Adam Smith’s, The Wealth of Nations, Book IV, Chapter 2 “Of Restraints Upon the Importation From Foreign Countries of Such Goods as Can Be Produced at Home”
2. http://en.wikipedia.org/wiki/Learned_Hand
3. For some of those quotes, see http://en.wikiquote.org/wiki/Learned_Hand
4. This portion of his speech (21 May 1944 in Central Park, New York City) can be found under the section “World War II” at http://en.wikipedia.org/wiki/Learned_Hand . This author has amended the original printed layout of the speech.

What …? If …? How …?

(“Private” reflections for Miltonites*)

What does one do when captured by a phrase? The phrase, “Our minds tell us, and history confirms …” comes from page 2 of Milton Friedman’s Capitalism and Freedom. He uses it to protest excessive government, and he is probably (mostly) right, BUT somehow, he seems entirely unconscious of the “private” side of what “Our minds tell us, and history confirms ….” With each of his critiques of the public sector, a private sector parallel rears its substantial, unacknowledged head. Consider:

If we must keep government “from becoming a [public] Frankenstein that will destroy the very freedom we establish it to protect,”¹ what of private Frankensteins? What of private sector employment contracts that limit speech, that require work on Holy Days, that deny freedom of association, that create master/servant relationships, that subsume “common traditions” and loyalties to employer demands, that command and control and centralize in pursuit of efficiency and profit; etc., etc.?

If “[o]ur minds tell us, and history confirms, that the great threat to freedom is the concentration of power,”¹ why should we blindly, passively trust the self-regulating free-market that inexorably concentrates both wealth and power?

If two broad Constitutional principles have preserved our freedom despite repeated “violations in practice,”² might not the same principles to preserve freedom apply to the private sector and its violations: namely, limiting the size of market players and dispersing their power (but not their responsibility)?

How can we “insure that the private sector is a check on the powers of the governmental sector”³ when private sector money pursues and buys power and influence for self-interested agendas and curtails with impunity many of the fundamental freedoms as noted above?

If “[t]he preservation of freedom is the protective reason for limiting and decentralizing governmental power,”³ what about protecting freedom by limiting and decentralizing private economic power?

If “[t]he great advances of civilization … have never come from centralized government … or … in response to governmental directives”⁴ are those advances attributable to competitive capitalism or in spite of competitive capitalism? Were any of Friedman’s named achievers⁴ motivated by competition, efficiency, and profit, or were they impassioned by gifts, inspirations, and altruism?

If “[g]overnment can never duplicate the variety and diversity of individual action,”⁴ can competitive, corporate capitalism do so? Are not uniformity, standardization, conformity, stagnation, and mediocrity⁴also characteristic of most oversized “competitive” corporations? Where does most innovation come from—born from the head of a Zeus-corp or born in some obscure garage by real individuals?

If “freedom [is] the ultimate goal and the individual [is] the ultimate entity in society,”⁵ why is competitive capitalism chiefly built on the collective model with command and control centralized in top-down dictatorships of master/servant relationships? And does the legal-fiction that calls a corporate collective, an “individual with individual rights” really convince us that competitive capitalism based on such a fiction is the defending champion of freedom and individualism?

If “[a]ny system [i.e., Federal Reserve System] which gives so much power and so much discretion to a few men that mistakes—excusable or not—can have such far-reaching effects is a bad system … because it gives a few men such power without any effective check by the body politic,” what about the private and financial sector’s deregulation passion begun in the 1980s that “disperse[d] responsibility yet [gave] a few men great power,” without effective check?⁶

If the U.S. government’s “abrogation of the gold clauses [in the 1930s] was a measure destructive of the basic principles of free enterprise” by declaring contracts “invalid for the benefit of one of the parties!” what of private sector corporate restructuring which does the same?⁷

How are we going to get beyond entrenched fallacious theories, one-eyed analyses, justifications, and myths and manias of the “free-market” until we honestly consider what “our minds tell us, and history confirms …” about BOTH the public and private (corporate dominated) sectors? If collectivism is really masquerading in capitalistic, individualist clothing, do we have a free-market or just the pretence of one?

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*All page references below refer to Milton Friedman’s Capitalism and Freedom (Fortieth Anniversary Edition) The University of Chicago Press, Chicago, © 1962, 1982, 2002
1. p. 2
2. pp. 2-3
3. p. 3
4. pp. 3-4
5. p. 5
6. p. 50
7. p. 60